5 Major Types Of Business Mergers And Acquisitions M&A Advisory, Audit and Accounting

At the time of the transaction, Kraft was a leading producer of mayonnaise, salad dressing, cottage cheese, natural cheese and lunch meat. Heinz, meanwhile, was the world leader in meat sauce, pasta sauce and frozen appetizers.

• Conglomerate mergers are mergers of two business firms engaged in unrelated business activities.
• Along with market power, another reason one large firm may want to acquire another firm is to diversify its operations.
• For example, RBC Centura’s merger with Eagle Bancshares Inc. in 2002 was a market-extension merger that helped RBC with its growing operations in the North American market.
• An example of a congeneric merger is when banking giant Citicorp merged with financial services company Travelers Group in 1998.

This overlap between the companies creates synergies (whereby the two companies become greater than the sum of their parts). Our consumption patterns increasingly revolve around conglomerates, who have become experts in acquisitions. DealRoom has worked with companies on every manner of the deal, so we decided to provide readers with a brief overview of different acquisition types, along with an indicative example. A typical example usually given by corporate finance textbooks which exhibits this distinction in a simple fashion is an ice-cream manufacturer buying a wafer manufacturer.

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Additionally, many saw how banks shut down credit to small businesses in the U.S. during and after the recession. This would not have been such a huge problem if the banking industry had not been so consolidated. Eagle Bancshares also holds the Tucker Federal Bank, which is one of the ten biggest banks in the metropolitan Atlanta region as far as deposit market share is concerned. One of the major benefits of this acquisition is that this acquisition enables the RBC to go ahead with its growth operations in the North American market. Well, there are many reasons for companies to merger, forming a larger, more powerful organization. These reasons are largely what dicates what type of merger the action is labeled as.

The two companies both operate in the electronics industry and the resulting merger allowed the companies to combine technologies. The merger enabled the combination of Mobilink’s 2G and 2.5G technologies with Broadcom’s 802.11, Bluetooth, and DSP products. A merger refers to an agreement in which two companies join together to form one company. In other words, a merger is the combination of two companies into a single legal entity.

Types of Mergers and Acquisitions with Examples

Although they are executed differently, both mergers and acquisitions involve lots of complex legal and financial procedures and activities. Even though this reason is never stated by the merging firms, it is often about market power. Some firms think, „The bigger, the better.” Economists who are anti-conglomerate think that acquisitions of smaller firms by big conglomerates cause less efficiency in the financial markets.

A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.

Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology. It is also in the process of being certified to produce wireless networking chips that have high speed and General Packet Radio Service technology. It is expected that the products of Mobilink Telecom Inc. would be complementing the wireless products of Broadcom.

Legal Issues That Small and Medium-Sized Businesses Will Face in the Upcoming Years

GE is a great example, according to Point Park University, because they work in tons of different areas from aviation to healthcare to household products to various gizmos. GE seemingly does it all and they were able to pull that off by acquiring other companies that specialized in these fields. So, though a merger seems like a troubling move for companies on paper, it’s actually a solid business move that both companies will – if done correctly – benefit from.

The acquisition and absorption of Wachovia by Wells Fargo is a real life example of a forward merger. Another form of vertical merger happens when a firm acquires another firm which would help it get closer to the customer. For e.g., a consumer durable manufacturer acquiring a consumer durable dealer, an FMCG company acquiring m advertising company or a retailing outlet etc.

Types of Mergers and Acquisitions (M&A)

If it introduces one or more new businesses in different areas under its umbrella, it diversifies its product line and becomes less vulnerable to the whims of the market. However, concentric mergers happen when a company merges with another company that sells products to the same customers, though they sell different products, making them indirect competitors. Two businesses that compete in the same market, merge to create an entity with a „supersized” market share. Increasing the market share and integrating key processes, such as manufacturing, may help to lower overall operating costs.

• The banking industry, after the Deregulation and Monetary Control Act of 1980, has become very consolidated.
• The acquiring company and the target company may have overlapping technology or production systems, making for easy integration of the two entities.
• The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers.
• There are almost zero synergy benefits for conglomerate mergers but there is an opportunity for business risk diversification .

Both of these types of mergers involve companies that are combining their related business operations. Congeneric mergers also involve companies in related lines of business, while conglomerate mergers do not. A market-extension merger is a merger between companies that sell the same products or services but that operate in different markets.

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A good example of a horizontal merger in the real world is when the Bank of America merged with Merrill Lynch or the acquisition of Warner-Lambert pharmaceutical company by Pfizer and so on. A congeneric merger can allow a target and its acquirer to take advantage of overlapping technology or production processes to expand their product line or increase their market share. A product extension merger is a kind of congeneric merger where the product line of one company is added to the product line of the other.

Not only are the same customers buying all of their products, they are buying at the same exact time. So if the bigger printer company owns the paper company and the ink company, all of the companies involved should benefit from coming together. Along with market power, another reason one large firm may want to acquire another firm is to diversify its operations. If a large firm has just one line of business, it is very vulnerable to the ups and downs of the larger financial markets and the economy.

The Concentric Merger

When we think of their product lines, they can include anything from pet food to detergent, dairy products to frozen foods. A market extension acquisition is a variation of a horizontal acquisition, whereby the companies in question are in different geographic locations. Fundamentally, an acquisition is simply a transaction in which one company purchases another. In the upcoming articles in our series of M&A, we shall focus on the stages of Mergers to understand processes from planning to valuation to integration.

In this article, we will look at different types of mergers that companies can undergo. In other words, if you should own a company that makes shoes, you probably would benefit from merging with a company that makes rubber, or a company that makes fabrics. By doing so, you will be able to make your product for a cheaper price by controlling more of the supply chain, which – in effect – gives you a huge concentric merger example in india competitive advantage. The conglomerate acquisition occurs when a large company has grown through a series of bolt-on acquisitions, usually with a diverse range of product and service lines, geographies, and industry outlooks. Cross-border acquisitions are the most commonly seen form of the market extension acquisition, and are particularly common in industries like food retail and retail banking.